Trade and investment relations between the EU and RI
Trade and investment relations between the EU and RI
The European Union is the world's largest trade entity. Its
trading activities account for more than one-fifth of total world
trade in goods. EU exports to the rest of the world form a vital
source of its income, representing 9% of the Union's gross
domestic product (GDP).
EU imports correspond to 21% of the world total and 10% of its
GDP. The European Single Market is an open one, with an average
import tariff for industrial products that will be as low as 3.8%
once the new GATT is fully implemented.
Trade between Indonesia and the European Union as well as
European investments in Indonesia have steadily increased over
the past years.
The European Union is Indonesia's second largest trading
partner after Japan, but well ahead of the United States.
According to trade figures of the European Statistical office,
Indonesia maintains a trade surplus with the European Union. The
share of manufactured products continues to be a larger share of
Indonesia's exports to the Union. Indeed during the period 1990-
1993 Indonesia exported more manufactured products to Europe than
to any other market in the world.
With a total foreign investment of US$22.6 billion, the
countries of the European Union were the largest investors in
Indonesia during the period 1967-1994.
Trade
The geographical pattern of Indonesia's trade has remained
quite stable in recent years, the bulk of it being with other
Asian countries, which absorb about two-thirds of Indonesia's
exports and supply about half of its imports. In 1992, the
European Union overtook Japan in trading manufactured goods with
Indonesia.
Japan remains nevertheless the single most important trade
partner of Indonesia, due to its large imports of oil and gas.
The European Union ranks second, far ahead of the United States.
The European Union doubled its share in Indonesia's total exports
from 7.5 % in 1985 to 15 % in 1992. During the same period,
imports from Europe rose from 16 % to over 23 % of Indonesia's
total imports.
Indonesia is a traditional supplier of agricultural
commodities, such as crude rubber, vegetable oils and fats, cork
and wood manufactures, for which it still holds a substantial
share of European imports.
The composition of Indonesian exports to the EU recorded 68%
of manufactured products in 1993 as compared to 56 % in 1990.
Over the past years, Indonesian exports of labor-intensive
manufactured goods such as textiles, clothing, furniture and
footwear have been growing fast, and the Indonesian share of the
EU total imports of these products is now significant.
The most outstanding example in this respect are textiles and
garments, which represented 30 % of Indonesian exports to the
European Union in 1993. Indonesia is now ranking fifth among the
EU's suppliers for these products; it was only 13th in 1987.
The tariff preferences granted by the European Union under the
GSP have greatly contributed to the increase of Indonesia's
exports to the EU.
In 1993, exports worth 2.4 billion ECU benefited from the GSP
and Indonesia was the third single beneficiary country of the
European GSP after China and India. Important improvements
focusing on development aspects have been introduced under the
new GSP, adopted by the European Union in late 1994. The most
important reform is that GSP preferences will no longer be
subject to quantitative restrictions.
The composition of European exports has remained rather stable
over the last decade, the bulk being technologically advanced,
capital-intensive products such as machinery and chemicals. In
1993, 85% of European exports to Indonesia concerned manufactured
products.
The recent trade pattern shows that both sides are making
extensive use of their comparative advantages. As a result, trade
between the European Union and Indonesia has steadily increased.
Two-way trade grew an impressive 17% per year, from 5.7 billion
ECU in 1990 to 9.1 billion ECU in 1993.
European Investments in Indonesia
Over the period 1967-1994, the member states of the European
Union were the largest investors in Indonesia, their approved
investments amounting to US$22.6 billion. This figure represents
24 % of total foreign investment approvals, well above
investments from Japan (20 %), U.S. (9 %), Hong Kong, Taiwan,
Singapore and Korea.
Whereas the Asian countries largely invest in labor-intensive
export industries like garments and footwear, European
investments have been concentrating on capital-intensive
enterprises that supply the domestic market, such as food, paper,
chemicals, and non-metallic mineral industries.
However, the latest figures show that Europe has lost some ground
but every effort is being made to reverse that trend.
An important role in promoting European investments in
Indonesia has been played by the European Community Investment
Partner (ECIP), which has provided soft financing to 60 joint-
ventures in the manufacturing sector. Indonesia is one of the
major beneficiaries of the ECIP in the world, which provides
financing, training and support for feasibility studies.